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Key Factors Likely to Shape State Street's (STT) Q2 Earnings

State Street STT is slated to announce second-quarter 2020 results on Jul 17, before market open. While its revenues are expected to have declined in the quarter, earnings are likely to have witnessed a year-over-year improvement.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. The results benefited from lower expenses, growth of assets and improvement in fee income, partly offset by a decline in net interest income (NII) and significantly higher provisions.

State Street boasts an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, with a surprise of 13.09%, on average.

State Street Corporation Price and EPS Surprise

State Street Corporation Price and EPS Surprise

State Street Corporation price-eps-surprise | State Street Corporation Quote

Factors to Influence Q2 Results

NII to Decline: The Zacks Consensus Estimate for the company’s average interest earning assets of $216.7 billion suggests a 4.9% sequential rise. However, soft loan demand and near-zero interest rates are likely to have hampered State Street’s NII in the to-be-reported quarter.

Management expects NII for the second quarter to decline almost 11% from the prior quarter, given the full-quarter impact of the Fed rate cuts. Moreover, the consensus estimate for NII of $582 million indicates 12.9% sequential fall.

Also, the Federal Reserve’s decision to cut rates to near zero in March for supporting the U.S. economy from coronavirus-induced slowdown is likely have resulted in the contraction of State Street’s net interest margin in the second quarter.

Fee Income Did Not Offer Much Support: The second quarter persistently witnessed higher foreign exchange (FX) trading volatility and FX volumes. But the level and pace weren’t the same as the first quarter. Thus, on a sequential basis, State Street’s FX trading services revenues are likely to have recorded a fall. The consensus estimate for the same indicates a 22.4% year-over-year decline to $356 million.

Also, owing to weak equity market performance and a decline in the value of assets, servicing and management fees are expected to have been negatively impacted in the to-be-reported quarter. The consensus estimate for servicing fees of $1.23 billion indicates a 3.9% sequential decline. Likewise, the consensus estimate for management fees of $417 million suggests 7.1% fall.

Conversely, as the spread between the three-month LIBOR and Fed funds rate narrowed in the quarter and the balance sheet expanded, securities finance revenues are likely to have increased sequentially. The Zacks Consensus Estimate for the same of $101 million implies a 9.8% rise from the prior quarter.

Management expects fee revenues for the second quarter to be down 5-9% sequentially, owing to lower equity market levels. Servicing fees are anticipated to be down 5%, management fees are likely to fall 9% and some reversion is expected in trading revenues.

Expenses to Fall: Driven by the success of the expense-saving program, State Street’s operating expenses are likely to have declined in the second quarter. Further, the company is on track to lower compensation and benefits expenses, occupancy costs, IT expenses as well as other costs.

What the Zacks Model Reveals

Our proven model doesn’t conclusively predict an earnings beat for State Street this time around. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for State Street is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).

Q2 Earnings & Sales Projections

The Zacks Consensus Estimate for State Street’s earnings of $1.63 for the quarter has been revised 10.1% upward over the past seven days. The figure indicates a rise of 12.4% from the year-ago reported number.

The consensus estimate for first-quarter sales is pegged at $2.87 billion, indicating 0.1% year-over-year fall.

Stocks That Warrant a Look

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases.

F.N.B. Corporation FNB is scheduled to release quarterly earnings on Jul 16. The company, which carries a Zacks Rank #3 currently, has an Earnings ESP of +12.37%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Bank OZK OZK is +52.86% and it currently carries a Zacks Rank of 3. The company is slated to report quarterly numbers on Jul 23.

The Earnings ESP for Associated Banc-Corp ASB is +7.31% and the stock presently carries a Zacks Rank #3. It is scheduled to report quarterly numbers on Jul 23.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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